Record low inflation adds pressure on RBI to cut interest rates

Record low inflation adds pressure on RBI to cut interest rates

Toronto: If the central bank of India did not feel the pressure to reduce interest rates after the imbroglio of last week with the government, it may be so.

Consumer price inflation in the $ 2 trillion economy slid to a new record high of 2.18% in May, figures showed Monday, below the 2.4% estimate in A Bloomberg survey on economists. The data is only five days after the Reserve Bank of India (RBI), headed by Urjit Patel, refrained from lowering interest rates to its latest policy announcement, prompting a quick reprimand from the chief economic advisor Of Prime Minister Narendra Modi.

“As inflation continues to remain lower than that of the RBI, we hope that the figures will increase the pressure on the central bank to cut rates,” said Anjali Verma, a Mumbai-based economist at PhillipCapital.

The third Asian economy is facing a decline in inflation during the fall in food prices, spillovers from the government’s ban on money and a 6.1% slowdown in growth, The lowest in two years. An over-abundance of distressed debt that resists the demand for credit at a 25-year threshold is also burdensome on the economy.

When it announced interest rates on June 7, the RBI said it is unclear if such forces are transitory. It retained its benchmark repurchase rate at 6.25% and maintained a neutral policy bias. However, inflation forecasts of 2% to 3.5% were published for the first half of the year ending March, compared with a previous estimate of 4.5%, Rates, according to some analysts.

This does not seem to go far enough for the government advisor Arvind Subramanian, who told a briefing to the media that just hours after the decision, the conditions warrant a substantial easing. Now, the central bank is facing a further decline in consumer price inflation. The decline to 2.18% followed a reading of 2.99% in April. Less than four years ago, Indian inflation in consumer prices was 11.5%. The RBI aims to keep inflation close to 4% in the medium term. The anticipation of a decline in interest rates has helped stimulate demand for Indian assets. Rupee-denominated foreign public and public debt holdings increased by R $ 148 billion ($ 2.3 billion) last week, the most in two months, after RBI cut its projections of ” inflation. Overseas funds bought a net amount of $ 322 million of local stock the day after the announcement of the policy, the largest flow in nearly three weeks, but they are still net sellers for the month.

A major hindrance to inflation has been the fall in food prices, which has helped to stimulate fatal outbreaks of farmers. The country’s food inflation fell in negative territory, dropping 1.05% from a 0.61% increase in April, according to Monday data.

Prices for soybeans, mustard and peanuts fell to a minimum of five years after production rebounded in normal rainfall in 2016-17 after two years of drought. Wholesale food grain prices, including rice, wheat and pulses, declined four consecutive months to March and were about 10% lower than in November, according to government data. With India scheduled for a normal monsoon – so far, it’s above normal. Persist in the second half of the year, said Soumya Ghosh, chief economic advisor to the group at the State Bank of India. The weighted contribution of food inflation in the consumer price index fell to about 19% from 54% in April 2016, Ghosh said, and not only is the weather good ….

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